Home Blog E-commerce and Omnichannel Excellence in the Middle East Retail Landscape

E-commerce and Omnichannel Excellence in the Middle East Retail Landscape

0

The Middle East’s retail landscape is undergoing a transformation driven by the rapid growth of e-commerce and the increasing demand for seamless omnichannel experiences. This presents a significant growth opportunity for proactive retailers. In this paper, Simon-Kucher and industry experts outline the drivers of this growth, challenges faced by retailers, and a blueprint for achieving e-commerce and omnichannel excellence in the Middle East.

Drivers for Growth in E-commerce and Omnichannel Retail

The e-commerce market in the Middle East is poised for significant growth, with projections estimating it to reach USD 60 billion by 2026. This growth is driven by several key factors. The region’s increasingly digital-savvy population, particularly the younger demographic, combined with widespread smartphone adoption (expected to reach 90% by 2026), has created a favorable environment for e-commerce and omnichannel to thrive.

The COVID-19 pandemic has further accelerated the growth of e-commerce and omnichannel retail in the Middle East. Existing online shoppers have increased their spending, particularly in traditionally brick and mortar categories such as food and beverage (with an average individual’s spend increasing by 55% during the pandemic) and well-established categories like beauty (14% during the same period), fashion (25%), and toys (22%). Additionally, a significant number of new customers have embraced online shopping for the first time, leading to an overall increase of 20 percentage points increase in penetration rate across different product categories. However, it is worth noting that the initial boost in spending caused by COVID-19 has now subsided, and the expected annual growth in spending across all categories has returned to pre-pandemic sub-10% levels.

Navigating Challenges in the Middle East Omnichannel and E-commerce Landscape

As the retail landscape in the Middle East undergoes transformation, retailers face a range of challenges that require careful navigation. One primary challenge for retailers is the high cost of logistics, which can account for up to 25% of the basket size depending on the average order value, impacting their already slim margins. Retailers, whether pure online or omnichannel players, typically have two options for fulfilment with corresponding trade-offs. They can either outsource delivery operations to 3rd party suppliers, which limits control over the process and can potentially compromise the omnichannel experience, or establish their own logistics operations, which requires upfront investments and comes with scalability considerations.

The high logistics costs place significant pressure on profitability, necessitating not only operational excellence but also strategic management of revenue levers such as assortment, pricing, and promotions to maintain profitability.

Another significant challenge in the Middle East is the prevalent use of cash on delivery as a payment method (up to 30% of all payments), which result in increased returns and additional costs. In fact, research indicates that cash on delivery transactions have a return rate as high as 40%, significantly impacting the overall profitability of retailers.

Tariffs present another significant obstacle for retailers in the Middle East. The complex tariff systems across the region increase costs for cross-border e-commerce operations.

Finally, the Middle East’s cultural diversity adds complexity to customer experience. Understanding and catering to more than 10 local dialects and cultural preferences to provide personalized shopping experiences is a crucial challenge for players in the region.

Simon-Kucher’s Blueprint for Omnichannel and E-commerce Success:

Setting a Clear Vision

As recommended by Lovrenc Kessler – Managing Partner of Simon-Kucher Middle East, retailers must establish a clear vision for their e-commerce and omnichannel operations. This vision should be ambitious yet realistic, aligning all stakeholders around a shared objective. By providing a clear direction, CEOs can rally the organization and prioritize efforts towards achieving a successful omnichannel strategy.

Prioritizing Strategic Channels

Chris Bergman, Partner at Simon-Kucher Middle East, advises retailers to identify their most impactful channels. By leveraging data-driven insights, retailers can strategically allocate resources to channels that resonate most with their target audience. Prioritizing investments in these channels enables retailers to create consistent and compelling customer experiences.

Activating the Execution Flywheel

Emre Ozan Aydın, Senior Manager at Simon-Kucher Middle East, highlights the importance of meeting customer needs, reaching operational excellence, and driving performance improvement across a number of key dimensions that retailers need to optimize: fulfillment, activation, conversion, assortment, pricing, and loyalty. By implementing best-in-class design principles and continuously monitoring these elements, retailers can unlock scale while controlling costs.

Establishing a Robust Operating Model

To effectively support omnichannel retailing and e-commerce, retailers must establish a robust operating model and technology infrastructure. This encompasses organizational alignment, streamlined processes, cross-functional collaboration, and enhanced capabilities combined with best-in-class digital infrastructure like digital payment solutions.

Conclusion

The retail landscape in the Middle East is transforming due to e-commerce and omnichannel retailing. Despite the challenges, retailers who innovate, establish a clear vision, prioritize strategic channels, and optimize across execution flywheel dimensions can unlock success in this dynamic environment. As the Middle East continues to tap into the potential of e-commerce and omnichannel retail, well-positioned players stand to reap significant benefits and long-term profitability.

Contributors: Lovrenc Kessler, Chris Bergman, Huseyin Erol, Emre Ozan Aydin

Load More Related Articles
Load More By editor
Load More In Blog

Check Also

UAE to host the prestigious FIATA-RAME Field Meeting & Conference

By Muhammad Rafiq DUBAI: The UAE National Association of Freight and Logistics (NAFL) has …